AMFI is likely to approach SEBI to define ‘mis-selling’. The industry body has asked fund houses to give their feedback on this issue by June 12.
HN Sinor, CEO, AMFI has confirmed this development. He said, “We need clarity on what construes mis-selling. We will also give our recommendations to the market regulator on mis-selling.”
The sales head of a foreign fund house said that fund houses are expected to give their feedback to AMFI on this issue soon.
Some distributors felt that ‘mis-selling’ needs to be defined clearly leaving no room for ambiguity or subjectivity.
Earlier in December 2012, SEBI had notified mis-selling as a fraudulent practice. The regulator has enumerated the following instances which will be construed as mis-selling:
- Making a false or misleading statement (This means that a distributor cannot assure returns or make unrealistic projections)
- Concealing or omitting material facts of the scheme (This means that a distributor has to disclose the lock-in, expense ratio, scheme portfolio, past performance, etc. of a scheme)
- Concealing the associated risk factors of the scheme (This could mean that that a distributor has to explain the various risk factors associated with a scheme e.g. the risks associated with a sector fund or interest rate risk in a fixed income fund)
- Not taking reasonable care to ensure suitability of the scheme to the buyer (Selling an equity fund to an investor knowing well that the investor will need the money for a child’s wedding in 3 months’ time is an apt example. However, not all cases are as open and shut as this and suitability will need to be defined better).
- The issue of mis-selling came under spotlight after a few fund houses reportedly paid high commission to distributors in closed end funds. Some argued that such high commissions can lead to mis-selling. After a SEBI nudge, AMFI capped upfront commission and gave freedom to decide trail commission within the distributable TER.
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